Stocks traded in a tight range through most of the day before breaking lower in the last hour of trading. Financials dominated trading, with the bank losses running too deep to let stocks rise, desite another down day for oil.

"All of a sudden we have echoes of financial concerns," Art Cashin, director of floor operations at UBS, said on CNBC. "That's why so far we haven't been able to get the benefit of weaker oil."

JP Morgan plunged on news the bank incurred losses of about $1.5 billion for the quarter to date, as it continued to be hurt by wider credit spreads, lower levels of liquidity, as well as the disruption in the credit and mortgage markets.

Goldman Sachs shares also were among the biggest casualties after a downgrade from Deutsche Bank as well as Oppenheimer analyst Meredith Whitney, who cut the third-quarter share view to $2.15 from $3.54 and rated the stock "market perform."

Citigroup also warned that Bank of America may cut its dividend later this year or early in 2009.

And Wachovia increased its previously reported second-quarter loss to $9.11 billion to cover costs to settle a probe of auction-rate securities sales, and said it will cut more jobs as the housing market deteriorates.

The SEC rule on the restriction of shorting financial securities expires on Tuesday.

Watch "Mad Money" host Jim Cramer's outrage of the day in video at left.

Also in the financial sector, UBS said it recorded net new money outflows of almost 44 billion Swiss francs ($41 billion) in the second quarter, compared with inflows of 34 billion francs a year earlier, and it racked up a further $5 billion in writedowns on investments. This took its total bill from the markets crisis to $42 billion.

Apple, riding the wave of robust sales for iPhones and related software, was one of the day's big winners.

General Motors led Dow gainers as automakers benefitted from oil's fall.

Oil prices briefly gainedafter the dollar declined amid a report showing that the US trade deficit narrowed in June, news that might normally be considered positive but in this case indicated that consumers were buying fewer imports because of economic troubles.

Oil ultimately closed down $1.44 a barrel to $113.01 after government data showed the steepest decline in crude demand in 26 years.

Elsewhere, Dow component McDonald's saw its shares slip on a downgrade from UBS.

Airlines were among the few sectors performing well, with Delta leading the group. The Dow Jones Airline index gained 1.4 percent early. The Platinum and Precious Metals index was up more than 4 percent.